Friday, August 21, 2015

Whether capital gains exempted under section 47(iv) of
income-tax Act (‘the Act’) would be includible in the books profit under
section 115JB for computing MAT?

The Mumbai ITAT held in
favour of assessee as under:

1)The provisions of section 10
lists out various types of income, which do not form part of total income. All
those items of receipts shall otherwise fall under the definition of the term
"income" as defined in section 2(24) of the Act, but they are not
included in total income in view of the provisions of section 10 of the Act.
Since they are considered as "incomes not included in total income",
the legislature, in its wisdom, has decided not to subject them to MAT.

2)Clause (ii) of Explanation
1 to section 115JB specifically provides that the amount of income to
which any of the provisions of section 10 applies (other than the provisions
contained in clause (38) thereof) than it is to be reduced from the Net profit,
if they are credited to the Profit and Loss account.

3)The logic of these provisions
is that an item of receipt which falls under the definition of
"income" but exempted under section 10 are to be excluded for the
purpose of computing "Book Profit".

4)Thus, it is seen that the
legislature seeks to maintain parity between the computation of "total
income" and "book profit", in respect of exempted category of
income.

5)If the said logic is extended
further, an item of receipt which does not fall under the definition of
"income" at all and hence falls outside the purview of the
computation provisions of Income tax Act, cannot also be included in "book
profit" under Section 115JB of the Act.

6)The profits and gains arising
under Section 47(iv) is not falling under the definition of
"transfer" and consequently, the same does not fall within the
purview of the definition of "income" given under Section 2(24)(vi)
of the Act.

7)Therefore in the instant case
the capital gains does not fall within the purview of the definition of
"income", so the question of including the same in the Book Profit
under section 115JB of the Act does not arise. - SHIVALIK VENTURE (P.) LTD. V.
DEPUTY COMMISSIONER OF INCOME-TAX, 8(3), MUMBAI - [2015] 60 taxmann.com 314
(Mumbai - Trib.)